If you are familiar with banking terms, you might have heard of the term FD or Fixed Deposit. FDs are one of the most popular investment options among people who want to earn a fixed return on their savings. In this article, we will discuss what FD full form is, its meaning, how it works, its benefits, and more. So, let’s get started!
What is FD?
Fixed Deposit or FD is a financial instrument that allows you to deposit your money with a bank or financial institution for a fixed period of time, ranging from 7 days to 10 years. The interest rate offered on FDs is fixed and is generally higher than the interest rate on savings accounts.
Full Form of FD
FD stands for Fixed Deposit.
Types of FD
There are different types of FDs available in the market, including:
- Regular Fixed Deposit
- Flexi Fixed Deposit
- Tax-Saving Fixed Deposit
- Senior Citizen Fixed Deposit
- NRI Fixed Deposit
- Company Fixed Deposit
How FD Works
When you open an FD account, you deposit a lump sum amount for a fixed period of time. The interest rate is fixed for the entire tenure, and you earn interest on the deposited amount.
At the end of the tenure, you can withdraw the principal amount along with the interest earned. You can also choose to reinvest the amount for another fixed period.
Advantages of FD
FDs offer several benefits, including:
- Guaranteed returns
- Higher interest rates compared to savings accounts
- Low risk investment
- Flexible tenures
- Easy to open and manage
Disadvantages of FD
FDs also have some drawbacks, such as:
- Lower liquidity
- Fixed interest rate
- Penalty for premature withdrawal
- Inflation risk
Taxation on FD
The interest earned on FDs is taxable as per the income tax slab of the depositor. TDS or Tax Deducted at Source is also applicable on interest earned on FDs.
FD vs. Savings Account
FDs offer higher interest rates than savings accounts, but they also have a fixed tenure and penalty for premature withdrawal. Savings accounts offer liquidity and flexibility, but the interest rates are lower.
FD vs. Mutual Funds
FDs are low-risk investment options with fixed returns, while mutual funds offer higher returns but are subject to market risks. FDs are suitable for risk-averse investors, while mutual funds are suitable for investors with a higher risk appetite.
Tips to Choose the Best FD Scheme
Here are some tips to help you choose the best FD scheme:
- Check the interest rates offered by different banks and financial institutions
- Choose a tenure that matches your investment goals
- Compare the penalties for premature withdrawal
- Check the credit rating of the bank or institution
FD Interest Rates
FD interest rates vary from bank to bank and depend on the tenure and deposit amount. Generally, the longer the tenure and higher the deposit amount, the higher the interest rate.
You can use an FD calculator to calculate the interest earned on your FD. You need to enter the deposit amount, tenure, and interest rate to get the maturity value.
How to Open an FD Account
To open an FD account, you need to follow the below steps:
- Choose a bank or financial institution: You can choose a bank or financial institution that offers FD accounts.
- Fill the application form: You need to fill the application form with the required details like name, address, PAN number, etc.
- Choose the tenure and deposit amount: You need to choose the tenure and deposit amount as per your investment goals.
- Submit the required documents: You need to submit the required documents like ID proof, address proof, PAN card, etc.
- Make the deposit: You need to make the deposit either through online or offline mode.
- Receive the receipt: Once you make the deposit, you will receive a receipt with the details of the FD account.
FAQs on Fixed Deposit
The minimum deposit amount for FD varies from bank to bank, but it is generally Rs. 1,000.
Yes, you can withdraw your FD before maturity, but you will have to pay a penalty.
The maximum tenure for FD is generally 10 years.
Yes, the interest earned on FD is taxable as per the income tax slab of the depositor.
Yes, you can get a loan against your FD, and the interest rate is generally lower than other types of loans.
In conclusion, FDs are a popular investment option for people who want to earn a fixed return on their savings. They offer guaranteed returns, flexible tenures, and low-risk investment.
However, they also have some drawbacks like lower liquidity and inflation risk. It is important to choose the best FD scheme that matches your investment goals and compare the interest rates offered by different banks and financial institutions.
By following the above tips and understanding the details of FDs, you can make a wise investment decision.